The Operation of Markets and Market Failure · 7135/1

AQA AS Paper 1, June 2017

All 12 written questions and 20 multiple choice questions from AQA AS Paper 1 (June 2017), The Operation of Markets and Market Failure. Case studies: Supermarkets and Gambling. Each question shows its marks and topic, with an examiner insight on 4, and opens the question paper and mark scheme at the right page.

Question paperMark schemeInsert

Context 1

Supermarkets

Extracts: Changes in real income and real food prices for · The rise of the discount supermarkets · Effects on consumers and firms

Q25Explain10 marks
Extract B (lines 2–3) refers to ‘the monopoly power of well-established firms’ in the supermarket industry.
Explain two factors that could influence the monopoly power of firms in the supermarket industry.

TopicMarket structuresMonopoly & market power

Examiner insight

What to cover
Factors: barriers to entry (economies of scale, sites), the number and size of rivals, brand loyalty, buying power over suppliers, and the growth of discounters.
Watch out
Explain two factors clearly and apply them to supermarkets.
Question paper p.16Mark scheme p.10Insert p.1Open in the tool
Q26Assess25 marks
Extract C (lines 16–17) states ‘have the changes in the supermarket industry been for the better, and if so, for whom?’
Use the extracts and your knowledge of economics to assess whether the changes in the supermarket industry are likely to be better or worse for consumers and firms.

TopicMarket structuresOligopolyCompetition policy & regulation

Examiner insight

What to cover
Changes: the rise of discounters (Aldi, Lidl), price competition, online shopping and store closures.
Evaluation
Consumers gain from lower prices and more choice. Large supermarkets lose market share and profit; suppliers may be squeezed. Judge using the extract data.
Watch out
Cover both consumers and firms.
Question paper p.18Mark scheme p.11Insert p.1Open in the tool

Context 2

Gambling

Extracts: Income in the gambling industry in Great Britain, · Gambling – problems and recent changes · Should the government do more to limit gambling?

Q31Explain10 marks
Extract E (lines 1–2) states ‘in 2007, before the recession, 68% of adults gambled, but by 2010, this had risen to 73%.’
Explain two factors that could have increased the percentage of adults who gamble.

TopicPrice determination in a competitive marketDemand & supplyBehavioural economics

Examiner insight

What to cover
Factors: online gambling access, advertising, the recession (hope of a quick win), lower prices of bets, and social norms.
Watch out
Explain two factors clearly and link them to demand.
Question paper p.26Mark scheme p.16Insert p.1Open in the tool
Q32Assess25 marks
Extract F (lines 17–18) states ‘should there be more regulations or taxes to try to reduce the effects of gambling, in terms of both its private and external costs?’
Use the extracts and your knowledge of economics to assess whether the UK government should intervene more in the gambling industry.

TopicMarket failure and government interventionGovernment intervention (micro)Merit & demerit goodsExternalities

Examiner insight

What to cover
Gambling is a demerit good with external costs (debt, crime, family harm) and imperfect information.
Diagram
Demerit good diagram.
Evaluation
Consider taxes, regulation of advertising and stakes, tax revenue, jobs and freedom of choice. Judge using the data.
Watch out
Use the extracts on private and external costs.
Question paper p.28Mark scheme p.17Insert p.1Open in the toolPractise the negative externality diagram
Q21 mark
Which one of the following sets of characteristics can best be used to distinguish between different market structures?
  1. AThe concentration ratio and the income elasticity of demand
  2. BThe ease of entry to the industry and the degree of product differentiation
  3. CThe number of buyers in the market and the productivity of firms
  4. DThe scale of production in the industry and the presence or absence of externalities
Show the answer

The answer is B.

TopicMarket structuresContestability & barriersOligopoly

Question paper p.2Mark scheme p.3Open in the tool
Q41 mark
Which one of the following gives a positive value for the cross elasticity of demand?
  1. AA fall in air fares increases the demand for holidays
  2. BA fall in the cost of car insurance increases the demand for cars
  3. CA rise in the price of petrol decreases the demand for cars
  4. DA rise in rail fares increases the demand for coach travel
Show the answer

The answer is D.

TopicPrice determination in a competitive marketCross elasticity

Question paper p.3Mark scheme p.3Open in the tool
Q61 mark
An economist puts forward a hypothesis which is assessed against evidence. As a result of this, the hypothesis is accepted, rejected or modified.
This is an example of
  1. Ahow normative but not positive economic statements are tested.
  2. Bhow value judgements influence economic decision making.
  3. Cthe methodology used to test economic theories.
  4. Dwhy economics is a social not a natural science.
Show the answer

The answer is C.

TopicEconomic methodology and the economic problemPositive & normative

Question paper p.4Mark scheme p.3Open in the tool
Q71 mark
The table below shows the quantities of sandwiches that would be demanded and supplied at different prices.
Quantity demanded Quantity supplied Price of sandwich per day per day £2.25 310 190 £2.50 280 280 £2.75 220 300 £3.00 180 320 Following a rise in production costs, supply falls by 80 sandwiches at all prices.
The new equilibrium price would be
  1. A£2.25
  2. B£2.50
  3. C£2.75
  4. D£3.00
Show the answer

The answer is C.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.5Mark scheme p.3Open in the tool
Q91 mark
The growth of car manufacturing around Birmingham led to firms producing components for cars. As a result, car manufacturing firms experienced a fall in their average cost of production. This is an example of
  1. Aa financial economy of scale.
  2. Ba marketing economy of scale.
  3. Ca technical economy of scale.
  4. Dan external economy of scale.
Show the answer

The answer is D.

TopicProduction, costs and revenueCosts & economies of scale

Question paper p.6Mark scheme p.3Open in the tool
Q101 mark
Claire’s sweet stall in Chorley market sells sweets in 100g bags. She has the following costs of production:
Stall rental £25 per day Sales assistant’s wages £32 per day Various varieties of sweets £0.26 per 100g Paper bags £0.01 per bag Assuming Claire sells 100 bags of sweets per day, what is the average cost of a bag of sweets?
  1. A£0.57
  2. B£0.59
  3. C£0.83
  4. D£0.84
Show the answer

The answer is D.

TopicProduction, costs and revenueCosts & economies of scale

Question paper p.6Mark scheme p.3Open in the tool
Q121 mark
The diagram below shows the demand and supply curves for new houses.
The initial demand and supply are D1 and S1. Other things being equal, which one of the following combination of events is most likely to cause demand and supply to shift to D2 and S2?
  1. AA fall in mortgage interest rates and a relaxation of planning restrictions
  2. BA fall in the price of new homes and a fall in the productivity of construction workers
  3. CA fall in the price of rented accommodation and a fall in the price of raw materials
  4. DA rise in incomes and a rise in wages of construction workers
Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.7Mark scheme p.3Open in the toolPractise the supply and demand diagram
Q131 mark
A government builds a new road to reduce traffic congestion on existing roads.
This project would inevitably result in government failure if
  1. Alocal residents raised environmental objections to the new road.
  2. Bthe cost of the new road was twice as large as the original estimate.
  3. Cthe reduction in traffic congestion was smaller than forecast.
  4. Dtotal benefits from the new road were less than the cost of the new road.
Show the answer

The answer is D.

TopicMarket failure and government interventionGovernment failure

Question paper p.8Mark scheme p.3Open in the tool
Q141 mark
A supermarket has estimated values of the income elasticity of demand for some of its products as shown in the table below.
Product Income elasticity of demand Fruit 0.30 Cheese 0.20 Milk 0.10 Eggs 0.01 If incomes increase by 5%, for which of these grocery items will the quantity demanded increase by more than 1%?
  1. AEggs
  2. BFruit
  3. CFruit and cheese
  4. DMilk and eggs
Show the answer

The answer is B.

TopicPrice determination in a competitive marketIncome elasticity

Question paper p.8Mark scheme p.3Open in the tool
Q151 mark
In the diagram below, D1 and S1 are, in the absence of government intervention, the market demand and supply curves for a vaccine. The demand curve D2 shows how much of the vaccine would have been demanded if the external benefits could have been captured by the market.
The diagram illustrates that there is a misallocation of resources because in a free market
  1. Athe price of the vaccine is too high.
  2. Bthere is excess demand equal to (Q3 – Q1).
  3. Cthere is under-consumption of the vaccine equal to (Q3 – Q1).
  4. Dthere is under-production of the vaccine equal to (Q2 – Q1).
Show the answer

The answer is D.

TopicMarket failure and government interventionExternalitiesMerit & demerit goods

Question paper p.9Mark scheme p.3Open in the toolPractise the positive externality diagram
Q161 mark
In an economy, the median total household wealth was £218 400 whilst the median total household income was £32 100. Which one of the following can be concluded from the above statement?
  1. AA household with an income of £32 100 would be expected to have wealth of £218 400
  2. BExactly 50% of the population had wealth higher than £32 100
  3. CThe average household income was higher than the average household wealth
  4. DThe average household wealth was nearly seven times the average household income
Show the answer

The answer is D.

TopicDistribution of income and wealthInequality & poverty

Question paper p.9Mark scheme p.3Open in the tool
Q171 mark
The diagram below shows the original market demand (D1) and supply (S) curves for fresh strawberries. A decrease in the demand for fresh strawberries shifts the demand curve from D1 to D2.
From the above diagram, it can be concluded that when the equilibrium price of fresh strawberries falls from £5 per kilo to £4 per kilo, the price elasticity of supply of strawberries is
  1. A-0.8
  2. B+0.8
  3. C-1
  4. D+1
Show the answer

The answer is D.

TopicPrice determination in a competitive marketDemand & supplyPrice elasticity of supply

Question paper p.10Mark scheme p.3Open in the toolPractise the supply and demand diagram
Q181 mark
The supply and demand curves for a good in a free market are S1 and D1. If the good generates negative externalities in production but positive externalities in consumption, which intersection, A, B, C or D, could represent the socially optimal equilibrium?
  1. AIntersection A
  2. BIntersection B
  3. CIntersection C
  4. DIntersection D
Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supplyExternalities

Question paper p.11Mark scheme p.3Open in the tool
Q191 mark
If firms in an industry increase their spending on advertising, it is likely to
  1. Ahelp firms to differentiate their products.
  2. Bmake it easier for new firms to enter the industry.
  3. Cmake the demand for the firms’ products more elastic.
  4. Dreduce the monopoly power of the firms in the industry.
Show the answer

The answer is A.

TopicMarket structuresMonopoly & market power

Question paper p.11Mark scheme p.3Open in the tool
Q201 mark
The diagram below shows the market demand curve (D) for a product. The market is currently operating as a monopoly with price P1 and output Q1.
If barriers to entry to the market are removed, the most likely result will be that
  1. Afirms will experience diseconomies of scale.
  2. Bthe benefits from economies of scale will increase.
  3. Cthe market price falls and output increases.
  4. Dthe market price rises and output falls.
Show the answer

The answer is C.

TopicMarket structuresContestability & barriersMonopoly & market power

Question paper p.12Mark scheme p.3Open in the toolPractise the monopoly diagramPractise the perfect competition diagram

Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.